January/February 2007

In This Edition

This paper uses a Markov-switching model with structural breaks to characterize and compare regional business cycles in Japan for the period 1976-2005. An early-1990s structural break meant a reduction in national and regional growth rates in expansion and recession, usually resulting in an increase in the spread between the two phases. Although recessions tended to be experienced across a majority of regions throughout the sample period, the occurrence and lengths of recessions at the regional level have increased over time.

Personal bankruptcy filings in the United States increased, per capita, nearly 350 percent between 1980 and 2005. This paper first addresses the changes in economic and institutional factors that have occurred over the past 100 years, many of which have occurred in the past 30 years, which are likely contributors to the dramatic rise in personal bankruptcy filings seen across the country. These factors include a reduction in personal savings, an increase in consumer debt, the proliferation of revolving credit, changes to bankruptcy law, and a reduced social stigma associated with filing for bankruptcy. Given the availability of bankruptcy data at various levels of aggregation, the remaining sections of the paper contain results from several different empirical analyses of bankruptcy filings using various data sets. Careful attention is paid to personal bankruptcy filings in counties located in Eighth Federal Reserve District states.

Federal, state, and local predatory lending laws are designed to restrict and in some cases prohibit certain types of high-cost mortgage credit in the subprime market. Empirical evidence using the spatial variation in these laws shows that the aggregate flow of high-cost mortgage credit can increase, decrease, or be unchanged after these laws are enacted. Although it may seem counterintuitive to find that a law that prohibits lending could be associated with more lending, it is hypothesized that a law may reduce the cost of sorting honest loans from dishonest loans and lessen the borrowers' fears of predation, thus stimulating the high-cost mortgage market.

This article was originally presented as a speech at the Dyer County Chamber of Commerce Annual Membership Luncheon, Dyersburg, Tennessee, August 31, 2006. The Federal Reserve has the responsibility to provide leadership. The ideal situation is when the market can reasonably predict what the Fed is going to do because the Fed has provided the leadership to make clear its objectives and how it pursues those objectives. The Fed is not and ought not to be viewed as an adversary of the markets. Policy actions and statements do have market effects. Those are unavoidable, but the Fed strives to make policy as clear as it can so that what is really surprising the markets is not Fed actions but the arrival of new information that surprises the Fed and markets together.